In response to the CSA's Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers and targeted consultations, market participants recommended implementing a WKSI regime, similar to that already existing in the United States, to alleviate the regulatory burden of certain prospectus requirements in the base shelf prospectus regime for specific large, established reporting issuers.
The CSA then published local blanket orders on 6 December 2021 (which came into effect on 4 January 2022), as set out in CSA Staff Notice 44-306 Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements (collectively, "Blanket Orders"), to provide temporary exemptions to "qualifying WKSIs" from certain base shelf prospectus requirements.
After re-evaluating the appropriateness of the eligibility criteria and considering further feedback from market participants, the CSA announced the Proposed Amendments which, if adopted, will replace the Blanket Orders.
Eligibility under the Proposed Amendments
To be eligible to file a WKSI base shelf prospectus, the issuer must, as of the date of filing the prospectus, be a WKSI that is an "eligible issuer". The Proposed Amendments are not applicable to an issuer that is an investment fund.
A WKSI is an issuer that on at least one day during the preceding 60 days: (i) had qualifying public equity of at least CAD 500 million or qualifying public debt of at least CAD 1 billion; (ii) is and has been a reporting issuer in a jurisdiction of Canada for the preceding three years; (iii) is qualified to file a short form prospectus; and (iv) meets certain other requirements.
To qualify as an "eligible issuer", the WKSI, during the preceding three years, must, among other things, have filed all periodic and timely disclosure documents and not have: ceased operations; become bankrupt; made a proposal under any legislation relating to bankruptcy or insolvency; and/or been the subject of a cease trade order.
How the Proposed Amendments refine the Blanket Orders
Under the Proposed Amendments, a receipt would be deemed to be issued upon filing a WKSI base shelf prospectus and would be effective for a period of 37 months after its issuance. A preliminary prospectus would still not be required.
In addition, the WKSI base shelf prospectus may omit certain disclosure such as the aggregate dollar amount of securities being qualified and a plan of distribution. However, an issuer relying on the WKSI regime would be required annually to confirm its qualifications as a WKSI. Failure to do so will result in the issuer having to withdraw the WKSI base shelf prospectus and issue a news release announcing that it will no longer distribute securities under a prospectus supplement to the WKSI base shelf prospectus.
Changes the Proposed Amendments make to the Blanket Orders include the following:
- Increased seasoning period - The WKSI must have been a reporting issuer for three years (increased from one year under the Blanket Orders).
- More streamlined filing process - The WKSI must file a qualification certificate and disclose, within the WKSI base shelf prospectus, the issuer's reliance on the WKSI rules and the amount of its qualifying public equity/debt. In comparison, the Blanket Orders require issuers to file a letter stating reliance on the Blanket Orders, certain historical disclosure regarding its securities and certification regarding certain compliance matters.
- Immediate launching and pricing of offerings - With the deemed prospectus receipt under the Proposed Amendments, there would be no regulatory review of the WKSI base shelf prospectus and no prior review of the Personal Information Forms (PIFs) required to be delivered with the WKSI base shelf prospectus. Thus, launching and pricing of an offering could occur immediately.
- Additional regulatory burden reduction - The Proposed Amendments extend the receipt effectiveness period to a maximum of 37 months (from 25 months) if supported by an annual confirmation.
- Greater fact-specific assessment of WKSI eligibility - The Proposed Amendments provide opportunity for applications for exemptive relief which may accommodate issuers that do not strictly fall within the eligibility requirements.
The Proposed Amendments are intended to: (i) increase certainty in transaction timing for issuers filing WKSI base shelf prospectuses; (ii) make capital raising more cost-efficient by streamlining and expediting the filing process; (iii) create greater consistency between the Canadian and American WKSI regimes which may enhance the efficiency and number of cross-border offerings; and (iv) address the concern of certain market participants that streamlining the filing process as prescribed by the Blanket Orders may result in issuers without a sufficient continuous disclosure record, market following and/or history of capital market participation being able to participate in the WKSI regime.
The CSA specifically requests comments regarding the WKSI qualification criteria in the definition of "well-known seasoned issuer", duration of the three-year seasoning period, eligibility criteria, eligibility exclusions and timing of delivery of PIFS with the base shelf prospectus. Since the Proposed Amendments prescribe more restrictive eligibility requirements, we welcome the availability of applications for exemptive relief to better reduce the unnecessary regulatory burden for certain large, established issuers.